Global Markets Brace for Volatility Amid Rising US Treasury Yields and Geopolitical Tensions

Global stock markets opened with a predominantly negative sentiment as investors reacted to President Trump's decision to delay Iran's proposal for the Strait of Hormuz. Asian markets showed mixed trading, while New York futures indicated declines, with Nasdaq futures down approximately 0.7% and S&P 500 and Dow Jones futures weakening by about 0.4%. Concurrently, oil prices and long-term US Treasury yields are climbing, with the latter reaching multi-decade highs. Israeli dual-listed stocks are expected to return from Wall Street with a negligible positive arbitrage gap of 0.1%. Tower, Nova, and Ormat are projected to rise 2%-3%, while Palo Alto is expected to weaken by over 3%. Teva and Elbit Systems are anticipated to drop around 1%.

The Tel Aviv Stock Exchange concluded the previous week with declines. The TA-35 index lost about 1.1%, the TA-90 index fell by approximately 3%, and the TA-125 index decreased by about 1.5%. Year-to-date, the TA-35 is up about 2.5%, the TA-90 is down about 3%, and the TA-125 has risen about 1%. The TA-Oil and Gas index led the weekly declines, dropping around 4%, partly due to global oil price volatility. This index is expected to attract significant attention at the start of the trading week following New-Med Energy's announcement of the cancellation of its $6.7 billion gas supply deal with Ratio for Dalia's new power stations. The TA-Cleantech index also performed poorly, falling about 4%, influenced by rising US Treasury yields and expectations of interest rate hikes, which impact financing costs for key companies in the sector.

US Treasury yields continued their upward trend, with the 10-year yield climbing to approximately 5.207%, the 30-year yield reaching 5.51%, and the 2-year yield advancing to nearly 4.9%. These yields are at levels not seen since 2007 for the 10-year and 2004 for the 30-year, attributed to swelling global government debt, geopolitical tensions, inflation concerns from energy shocks, and anticipated monetary tightening. Some analysts warn that continued yield increases could lead to a market breakdown, citing historical precedents of economic crises following rapid yield surges.

In currency markets, the Israeli Shekel is trading steadily against the dollar at 3.05. The US Dollar Index is strengthening globally. Analysts note that the Federal Reserve's recent rate hike, coupled with market expectations for further tightening, has widened interest rate differentials in favor of the dollar. Regional risk premiums, fueled by Houthi attacks and fears of wider conflict with Iran, also bolster the dollar as a safe-haven currency. Oil prices rose up to 2.5% after President Trump rejected Iran's proposal, with Brent crude trading around $107 per barrel and WTI around $94. Gold prices fell over 2% amid expectations of further US interest rate hikes and a stronger dollar.

Looking ahead, US September employment data and August inflation figures (PCE) will be key focuses, influencing interest rate expectations. Economists surveyed by Reuters anticipate around 100,000 new jobs in September. The PCE index for August is expected to show a 0.4% monthly increase, with the core index rising 0.3%. Annual inflation is projected at 3.7% to 3.8%, with the core index at 3.4%, still significantly above the Federal Reserve's 2% target. The Bureau of Economic Analysis will also release annual updates to national economic accounts, potentially affecting historical data on GDP, personal income, and consumption.